What is Professional Indemnity Cover?
This type of cover commonly has three names:
- Professional Indemnity Insurance
- Errors and Omissions Cover
- Professional Liability Cover
This cover is very important to a business as it covers the business for a number of actions and lets them carry on without the overhead of a legal claim. It is a prudent cover for all professionals to have.
Gabrielle and I are frustrated that claims often come about because the systems and procedures in place are often not followed, by the professional and their staff, leaving the customer to bear the brunt of their negligence.
We are also frustrated by insurance companies representing their clients whether the professionals are right or wrong. While we understand that this is a feature of this cover, we believe it gives some professionals the licence to act as they please knowing that the insurance companies will represent them whether they are right or wrong.
It is this action that we oppose as some professionals use the high cost of legal action as a business tool. As the accountant of an international real estate company told Gabrielle – “professional indemnity cover is our agent’s best friend.”
It must be remembered though that the professional has to pay the insurance company an excess on their policy if a claim is made which can be $1,000s. However the first thing the victim will do before making a claim is seek legal advice and find out what the action will cost and this is why so few claims are made.
NRL seeks to make claiming against professionals easy and affordable.
What actions does it normally cover?
Typically a business will be covered for acts of negligence and misrepresentation by their staff.
This is fine for a business which makes an honest mistake but it still does not make it easy for the customer to recover damages.
What does the insurance company pay for?
Typically the insurance company will pay for the following:
Damages and costs awarded against your professional
- Awarded means that a judge or similar professional has made a binding ruling on the case.
- Instantly there are lawyers involved and they will be using the three D’s of Deny, Delay and Defend so that their client, the insurance company, does not have to pay any damages or costs.
Legal and defence costs of your professional
- We accept that mistakes happen but within hours of questioning how our situation happened and whether our lawyer was a party to it we were without a lawyer.
- We were then left without legal representation and once our professionals had been informed of impending legal action the insurance company’s lawyers took over the case for them.
- While our professional’s legal costs and representation were being covered, Gabrielle and I had to fund our own legal action.
Claims investigation costs
- Our professional’s lawyers had a professional review our case and make representations in Court all of which was paid for by the insurance company.
Injury attendance costs
- Luckily no one was injured in our case.
Public relations costs
- Sometimes the fallout of negligence requires work to restore the position of the professional in the public’s eyes.
- Even though we spent 10 days in High Court very few people knew about it.
What normally isn’t covered?
It’s not a complete free ride for the professional as some things aren’t covered:
Intentional damage
Fraud and dishonesty
- If there is no claim due to the high cost of doing so, there is no case to be heard.
- Fraud and dishonesty can be very hard to prove but one of the motivators in forming NRL was the way the accountant for an international real estate company described Professional Indemnity Insurance as being their agent’s best friend purely because of the cost of making a claim for the victim.
- NRL is a service which can be used to take these professionals to task over their actions.
Known claims and circumstances.
Your new lawyer has professional Indemnity cover as it is an important tool for a professional and not all claims can be proven.
What professions are covered by professional indemnity cover?
Below is a list of professionals who may have cover
How will I know if my professional has cover?
Once your lawyer has made a claim against your professional you will learn very quickly if they have Professional Indemnity cover.
Your lawyer will be advised by the professional’s insurance company lawyers that they will be representing the professional on behalf of the insurance company. The professional then has the lawyers acting for them on behalf of the insurance company.
When we were in Court there was no mention of the insurance company, in fact we don’t know who they were, and anyone arriving in Court would think that the lawyers had been engaged by the professional.
What happens if my professional has no cover?
It makes little difference as to whether they have been negligent as the same effort will need to be put into proving it.
What is different is that the insurance companies cover damages and in the case of no cover the professional will need to cover the damages and costs themselves.
Our vendor had to engage his own lawyers as he did not have any cover and he even got to explain to the judge what a white lie was. It wasn’t until we were in Court that we realised that the two parties had shared experts and did not cross examine each other in parts of the hearing. This may have saved them some money but did not change the outcome of the hearing.
This situation is one that you will need to discuss with your lawyer as part of your decision to go ahead with a claim.
My thoughts are that it is negligent for a professional not to have Professional Indemnity Cover as they are putting their creditors at risk by not leaving themselves to be exposed to the risk of high leagal costs to fight claims against them.
This then potentially puts the professional in a position where they are unable to pay their other creditors. It also explains why I was taught that an important role of a director is to ensure that the business has the correct level of insurance cover.